The sorry state of small business employee benefits

Why are small business employee benefit plans such a mess? This introductory explanation is offered by professional education provider CEU:

“The vast majority of jobs in the United States are created by small companies that have fewer than two hundred employees. That market segment is the focus of this course, those small companies that are generally between two and two hundred employees. Most of these companies are private, or closely held and family businesses. This ownership structure can sometimes present its own unique set of challenges, with the added dimension of family dynamics, control, etc. Because they are small, and often do not have any real formal decision making process, structuring an employee benefits plan is sometimes haphazard at best. Often plans are chosen piecemeal and without much thought behind the design or selection process. For example, an uncle may have been chosen to implement a medical insurance plan, a golfing buddy may be given the 401(k) plan, etc. The author has seen situations where the medical plan was chosen by the spouse of the CEO, and usually not even for the right reasons”.

I would state the issue more succinctly: owners aren’t motivated to fix the problem.

We’ve witnessed a steady decline in the quality of employee health and pension benefits accompanied by increase in employee financial stress. The rise in popularity of 401(k) plans and the implementation of health care reform have been disastrous to the majority of employees of small businesses. Small business owners lack the tools to combat the effects of these large trends that undermine employee financial security. This leads to increased employee turnover, decreased employee productivity and a lower overall satisfaction with their job.

Whatever the reason. it seems that this is one of the most “fixable” problems in our economy that would lead to an significant improvement of financial security for the average working American. Yet the choice remains with each small business owner whether they wish to access better resources to help their employee benefits.

I don’t see this problem primarily limited by cost of high quality benefits. I recently put out a blog post showing that some top quality employee benefits can cost little or nothing. Yet I notice that many small business owners continue to view the topic as primarily limited by cost and cash flow. Others are simply unaware of their options or the adverse effects of poor choices altogether. For example, late last year I noticed that many small business employers were unaware of the five permitted ways that they are allowed to help employees cope with the problems of health care reform. As a result, some tripped over new tax rules and many more employees suffer financially with less than optimal health coverage.

Unfortunately there are some bad players in the marketplace. See this blog post from 2015. Certainly there are plenty of opportunities to trip over these rip-off artists. But the misstep does not need to be a final fatal move.

There simply doesn’t seem to be any mechanism available in the small business management horizon to educate and convince small business owners that top quality employee benefits are within their reach. My tiny company Freedom Benefits has operated in this space for more than 20 years but I can’t say that we’ve had and significant impact on the marketplace. Likewise, I don’t see any evidence that the government or private industry has been effective in dealing with the problem.

It seemed that online employee benefits service firms held some promise but recent scandals have rocked their credibility. Small business owners are justified in steering clear of any service that calls itself a “robo-adviser” or some similar term. Perhaps technology is the eventual answer but we’ve certainly not proven that yet.

For now, the only workable solution seems to be for select business owners to team up with select employee benefits advisers to work out comprehensive employee benefit plan systems, one business at a time, that meet the specific interests of each firm in maximizing the value of dollars allocated to employee benefits.


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